In 2020, vast numbers of people joined the gig workforce, both by choice and out of necessity. The COVID-19 pandemic is responsible for the loss of millions of jobs. Many of the newly unemployed have taken work as independent contractors or started their own businesses, many of them working out of their own homes. For the first time, all of these people will need to deal with employment accounting and taxes that involve a Form 1099 instead of a W-2.
If this describes you, don’t worry. There’s no shortage of cloud-based accounting services for very small businesses. The online services we review here stand ready to meet the needs of this large swath of the workforce. Three of the services can be used by companies employing 10 or more people, but most of the products are aimed squarely at freelancers, independent contractors, and sole proprietors. Some are free, and the rest have modest subscription fees.
There’s a huge market for these online solutions. Think Uber and Lyft drivers, Etsy and eBay sellers, or entrepreneurs who have created a product or service and want to build a small company around it. These businesses generally have one thing in common: the need to keep an extremely tight grasp on the dollars flowing into—and, sadly out of—their companies. All of them need some form of cash tracking. They also need help with tracking and paying income taxes as independent contractors. These online solutions provide all of that and more.
Beyond the Balance Sheet
The needs of freelancers, contractors, and sole proprietors vary as widely as the types of businesses they represent. Some want a simple way to track income and expenses. Others need the ability to send invoices and receive and record payments. Some need an integrated payroll service, while others are one-person shops. Companies that sell services might want a dedicated time-tracking tool. And what about taxes, inventory, and reports? Consider the factors below before you choose an accounting service for your business.
Do you need an application based on double-entry accounting? This is the system accountants use. When you do it manually, you have to understand concepts like debits, credits, and journal entries. But all double-entry accounting solutions designed for small businesses do all of that work in the background. What you see are familiar-looking forms and records and transactions.
Double-entry accounting follows strict rules and can produce the sophisticated financial reports that businesses need when they do a valuation of their company or apply for a loan or try to attract investors, for example. Four of the five sites reviewed here follow double-entry bookkeeping rules. GoDaddy Bookkeeping is the exception. If you’re working with an accountant, that may be important to you.
Online Connections to Your Financial Institutions
If you’re already logging into your banks, credit card companies, and so on online, you only have to enter those same usernames and passwords within your accounting application. As transactions appear in your online accounts, you can import them to your accounting service and track your income, expenses, and balances in close to real time, all from one convenient dashboard. Having this detailed picture of your complete financial picture affords small businesses the nimbleness so critical to their survival. Most accounting sites can connect to thousands of banks, so yours is likely among them.
All of the services I’ve reviewed here let you create invoices—sometimes recurring ones, even—and estimates, and send them to customers online. Some even offer to generate and send invoices via USPS. You can sometimes also see when a customer has viewed an invoice, automatically send them reminders, and assess late fees. If you do a lot of invoicing, test any potential services’ invoicing interface extensively before you commit to one. They’re all designed to be used by people who are neither accountants nor technical wizards, so they’re easy to use.
One of the best ways to improve your cash flow is to accept debit and credit cards and direct bank payments, so that customers can pay instantly and conveniently—though extra processing fees apply. The more convenient you make payment, the more likely it is you’ll get it on time. Most applications let you choose between multiple payment gateways, such as Stripe and PayPal, where you can set up a merchant account.
These cloud-based accounting applications have complementary Android apps and iOS apps, so you can accept payments on your smartphone or tablet while you’re away from your office computer and do other business-related tasks. Some of these apps offer interesting bonus features—see the Mileage Tracking section below for one example. You may not be able to do absolutely everything that you can do on the desktop site, but the apps’ features should serve you well when you’re out and about.
If you bill for time, a lot of that work may occur out of the office. Instead of scribbling notes or simply trying to remember, you can create time entries on your smartphone wherever you are. Other services and apps can help you track time, but if you choose an accounting website whose time tracking capabilities meet your needs, that’s one less app or service to maintain—and pay for. Some offer timers and timesheets, but most at least allow you to create time-based records and bill your customers for your services.
This is another area where you don’t want to guess—and lose a reimbursable expense. If you travel for work, this is a handy feature to have. If you are all about the miles and don’t need a heavyweight accounting service, you should definitely check out QuickBooks Self-Employed’s mobile app, which automatically logs your miles as you drive. You can also just enter records manually for your business-related trips on this site and others, and the application will calculate your mileage-related tax deduction. FreshBooks offers this automated tracking feature on its iOS app, too.
Quarterly Estimated Income Taxes
This is one of the most difficult tasks for sole proprietors and independent contractors–even those who have been in business for themselves for a long time. Some of these sites offer a suggested quarterly payment based on the income and expenses you’ve entered. Keeping track of estimated taxes as you go makes paying your annual taxes so much less painful. Besides, the IRS requires it and assesses penalties if you don’t pay estimated taxes.
GoDaddy Bookkeeping is the only site among those I’ve reviewed for sole proprietors that provides a bridge to PayPal, Etsy, Amazon, and eBay, which means you can automatically import sales data from those websites. If your business centers around this kind of e-commerce, GoDaddy may be worth your while for this alone.
Because these applications have limited features, you won’t see as many reports and customization options as you get in more full-featured accounting solutions, but they all at least offer multiple, customizable views of your data. Most of the services have a few preformatted report templates.
Like their higher-end counterparts, these services for freelancers and contractors all use bank-grade security. Even the smallest of businesses need to keep themselves and their customers safe. Intuit QuickBooks Self-Employed goes one step further by offering two-factor authentication for its websites. You can also download your data (if you wait up to 45 days), but you can’t upload that data back onto the website again. Wave similarly lets you export transactions as XLS and CSV files and sales receipts in a ZIP file.
FreshBooks ($15 to 50 per month) launched a brand-new version of its service a few years ago and has been slowly migrating features over from FreshBooks Classic. It’s now a full-featured invoicing-and-more site. Its new user interface and navigation tools make for an exceptional user experience that’s better than that of the competition. It supports double-entry accounting and is a good choice for someone whose business is primarily time-and service-oriented, such as freelancers and sole proprietors, though it does track the sale of products, too. Automatic mileage tracking, enhanced invoicing and project management, and new reporting tools are some of its many new functions. And it has terrific mobile apps. FreshBooks is our Editors’ Choice for freelancers and independent contractors.
Wave is a free service, though there are charges for payment processing and payroll if you use those features. The site no longer displays ads; revenues come from embedded financial services like credit card processing and advisory services. Yet Wave is the most comprehensive small business accounting application reviewed in this group and can accommodate sole proprietors as well as companies with up to 10 employees. You can create thorough customer, vendor, product, and service records. It also produces numerous types of transaction forms including estimates, invoices, statements, bills, and receipts. Wave lacks dedicated time and project tracking, and its mobile apps are on hiatus at this writing. But all things considered (especially its free status), it’s definitely worth your consideration.
GoDaddy Bookkeeping ($4.99 to $14.99 per month) has several things going for it. Beyond tracking income and expenses capably, it offers flexible invoicing tools that include automated reminders, progress updates, and recurring transactions. If you’re conscientious about keeping up with your incoming and outgoing money, you can get a good idea of how much you should pay every quarter in estimated taxes. It’s not double-entry accounting, though, and it lacks multicurrency support, project tracking, and comprehensive customer profiles. It’s a great service if you sell on Amazon, eBay, or Etsy, as mentioned earlier. It hasn’t been updated much since I last reviewed it, but the price has increased.
Wave has new competition in Sunrise, which is also free and based on double-entry accounting. Its user interface is pleasant, and its navigation tools are excellent. Sunrise handles income and expense management very well and its dashboard is better than others. Two unusual features are its transaction timeline and “rulesets” for sales taxes that simplify a difficult process. It also integrates with Gusto, so if you have an employee or two, you can do your own payroll. Like Wave, though, Sunrise lacks dedicated time-tracking capabilities and its mobile apps aren’t up-to-par.
Intuit QuickBooks Self-Employed ($15 per month) is a good choice for a self-employed individual or freelancer who needs to separate business and personal expenses, send invoices, and track mileage. Its user interface and navigation tools are exceptional. It also has useful mobile apps and helps you estimate your quarterly taxes based on your income and expenses. However, QuickBooks Self-Employed is one of the more expensive services in this group and it lacks features that some competitors have, such as recurring transactions, time and project tracking, and direct integration with e-commerce sites. As I mentioned earlier, it can also track your mileage, using your phone’s location services.
What if Your Business Is Too Big?
Capable as they are at meeting the needs of freelancers and other small businesses, these applications may not suit you if your company is larger or more complex. There are numerous sites, though, that can accommodate you, like Intuit QuickBooks Online (our Editors’ Choice winner for small business accounting) and Xero (another excellent choice for larger small businesses). These sites include advanced features like support for document management, customer and vendor portals, purchase orders, inventory tracking, enhanced customization options, and more sophisticated reporting.